Few words can cause as much unease among the information technology industry as "outsourcing", asks Karlin Lillington

Often seen as a term that goes hand in hand with job cuts and facility closures, outsourcing is actually more multidimensional.

Sometimes it does indicate a migration of jobs elsewhere. But outsourcing also means opportunity - to cut costs and streamline processes within a company, and also to create jobs and companies that provide outsourcing services, according to Gartner analyst Gianluca Tracamere.

In Dublin last week to speak at a Gartner conference on outsourcing, Mr Tracamere says the move by companies worldwide to outsource services, information systems management, office functions, software development, helpdesks and other tasks is now a permanent part of the corporate landscape.

"Is it reversible? No," he says.

"The main driver has been cost. For example, lots of IT departments now face the challenge of guaranteeing the same level of service in their companies with half the budget. This is why outsourcing has become such an attractive option."

But cutting costs by outsourcing - sometimes eliminating entire departments within a firm - has made outsourcing a tricky issue within corporate management and has turned it into a hot political and social issue as well.

Savings in-house can be considerable, but no company wants to announce job cuts during tough economic times - especially when jobs vanish not because they are no longer important to a firm but because the firm is going to contract the work in at lower cost from elsewhere.

This is particularly true when outsourcing - which is predominantly something done, inside national borders, by specialist service companies - actually means "offshoring", or moving work to other countries where a workforce will perform the same job at much lower cost.

In Silicon Valley, the trend among IT companies to move even high-end development work to India has created great unease, while in Europe, unions, particularly in union-strong countries like France and Germany, are beginning to agitate over the issue, Mr Tracamere says.

"Definitely, at the moment, offshoring is a big issue," he says.

Although offshoring constitutes a small part of the outsourcing market - 81 per cent of British companies outsource domestically, according to a survey by Harvey Nash - the growth potential is huge.

The market will expand by 40 per cent in Europe in 2003, Gartner estimates, with 75 per cent of European large and top-end medium-sized companies considering offshoring some work by 2004. India is the prime offshoring location, gathering 90 per cent of all offshoring revenue.

This has caused some companies to axe the term "outsourcing" and speak of their "global delivery capabilities" instead, says Mr Tracamere. "Global delivery sounds cool. Offshoring doesn't sound so cool."

China and Russia are slowly gaining larger shares of this market. And the fast-growing market for outsourcing could particularly benefit the Republic, Gartner research director Mr Ian Mariott told a London conference earlier this year.

"Nearshore locations often benefit from close cultural compatibility, language and similar time-zones," he said. "While they are more expensive than India or China, they can be a strong solution for companies if they operate in a single geographic location or require niche services. They can also be part of a 'portfolio of providers' for global enterprises." Other challengers to India include Canada, China, the Czech Republic, Hungary, the Republic, Israel, Mexico, the North, Philippines, Poland, Russia and South Africa, he said.

Mr Tracamere says that national governments are the latest sector to start looking at outsourcing work. Such moves will likely have major repercussions in Europe, where government and civil service jobs have traditionally been part of a "jobs for life" culture. "You'll see a real clash of cultures, of political and social issues" he says.

Overall, European companies will likely be forced to consider outsourcing some of the functions they do in-house, he says, if only because many operations are becoming increasingly complex - too much so for the functions not to be transferred to specialist service providers.

"And, in order to remain competitive, companies really need to be able to adapt their organisations to market trends," he says.

Rather than being just a coping strategy, outsourcing can have an enormously positive effect on a company through what Mr Tracamere calls "transformational outsourcing".

This involves totally "revamping, redesigning and intervening in business applications and business processes" within a company. He offers as an example a company that decides to outsource its IT functions. Such work can be moved to companies that specialise in thinking about both IT and business strategy, so the two become aligned rather than separate functions of the business.

Few IT departments or business departments within a company can combine technical, business and management expertise and authority, yet a merging of all three is needed for corporate strategy, he says.

If outsourcing sounds complicated, it is, he says. Therefore, businesses need to proceed carefully when looking to outsource operations, Unfortunately, most tend to jump in first, sign a contract, and think through their real needs after, Mr Tracamere says. For example, many of the companies Gartner spoke to in researching outsourcing trends said they had to adjust their outsourcing contracts long after signing them, sometimes up to 18 months or two years after entering an agreement.

"Focus on your outsourcing strategy," says Mr Tracamere.

"Look at your company's long- term needs, consider issues of corporate governance and how they might be affected by an outsourcing agreement, decide on which roles and responsibilities you wish to retain, and carefully select what you want to outsource and what you want to keep control of," he says. "Then go out and start talking."